The U.S. decision to ease financial and investment sanctions on Burma for the first time since 1997 is a landmark – and controversial – moment. It presents Western businesses with an opportunity to enter a largely untapped market, albeit one that suffers from weak rule of law and internal conflict. In response to such concerns, although the Obama Administration will now allow U.S. companies to invest in Burma, they must comply with Burma-specific reporting requirements for responsible business, which mandate public disclosure on social, environmental, and anti-corruption policies and procedures.
This is the first time the United States has implemented such requirements as an element of easing a sanctions regime. The imposition of the requirements indicates that, although the Administration wants U.S. companies to invest in Burma, both the government and civil society are deeply concerned about the ability of companies to operate responsibly in that context. Due to such worries, U.S. companies have a significant incentive to enter this market in a manner that follows international best practices regarding the environment, human rights impacts, and corruption – and a chance to demonstrate that U.S. businesses indeed are partners of choice.
The unique reporting requirements for Burma are a balancing act. By easing the sanctions, the Obama Administration seeks to reward the reformers in Burma’s government and to support U.S. business. Burma offers a new market for Western goods, has plentiful natural resources, was once the rice basket of Asia, and has profound needs for new infrastructure, all of which present an opportunity for business. At the same time, human rights and labor organizations are profoundly concerned about ongoing human rights abuses and corruption. The Reporting Requirements are an attempt to address those concerns.
Undoubtedly, civil society will criticize the requirements, in part because they only stipulate that companies must publicly divulge their human rights, environmental, and anti-corruption policies and procedures, but do not require the companies to have them in the first place. Yet regardless of whether the reporting requirements are perfect, they highlight the fact that civil society and – to a lesser degree – governments are deeply concerned about the role of business in Burma, which is currently dominated by companies with poor human rights and environmental track records. Western multinational companies entering Burma will therefore be in a “reputational fishbowl” as the organizations that strived to maintain sanctions against the Burmese government turn their attention to the role of companies inside the country.
Getting things right in Burma will be no easy task. Beyond the basic infrastructure problems – foreign cell phones do not work, Internet access is painfully slow, and many banks are on the Department of Treasury’s sanctions list – corruption is a huge challenge. Transparency International ranks the country at 180 of 182 countries, just ahead of Somalia and North Korea. Businesses closely tied to the former junta dominate the formal economy.
Political repression is still a problem; Burma appeared in Freedom House’s 2012 “Worst of the Worst” list of the world’s 10 most repressive countries, although the situation is improving. Of particular relevance to business, land-grabbing from poor villagers for corporate projects has long been a significant problem, although the villagers are starting to fight back. Moreover, the antiquated minimum wage law dates back to 1949. Its inadequacy has led to frustration over inadequate wages and unsafe working conditions, prompting a wave of labor protests in recent months. And finally, the government is still fighting internal wars in areas such as mineral-rich Kachin State.
Despite this perfect storm of challenges, there is an opportunity. Many Burmese resent the role that companies from neighboring countries have played in the country, citing their failure to avoid environmental degradation and human rights abuses. Burmese also express dismay that some of these companies import foreign labor to carry out projects, which leaves locals with few if any benefits. Many Burmese want economic development, but wish for the benefits to spread to the general population, and express hope that the multinationals poised to enter Burma will be different.
Therein lies the opportunity. If Western companies operate according to international environmental and human rights standards, such as the U.N. Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, they will differentiate themselves and become partners of choice both in Burma and the region.
In a sense, because it has been closed off for so long, Burma is a test case that will demonstrate whether Western companies have learned key lessons about operating responsibly over the past two decades. Given the stakes, this experiment cannot afford to fail.